A Consumer s Guide to... Return on Training Investment

Transcription

1 A Consumer s Guide to... Return on Training Investment

2 You may manage or own a business. You may be a trainer. In either case, you need to understand and implement ROTI principles and practices. This guide will help you to route your ROTI thinking. What is Return on Training Investment (ROTI)? ROTI is another expression for the concept of ROI (Return on Investment) for training expenditures. ROTI addresses the question: For every dollar invested in training, how many dollars does the employer (or worker or government sponsor) get back? ROTI is an accounting-based method of comparing the costs to the benefits of training, by converting all tangible costs and returns or outcomes to dollar values. The most common form of ROTI is cost / benefit analysis. Not all training can or should demonstrate ROTI. Not all benefits are tangible or easily measured, but they may be very important. ROTI is expressed as a percentage. A simple ROTI formula looks like this: Training Benefits / Costs X 100 = ROTI Some mathematical models for ROTI are very complex. There is no one way to conduct or demonstrate ROTI. Determining or demonstrating ROTI can be complex, depending on: the tangibility of benefits or returns, the extent of investments or costs, and the training needs of beneficiaries and stakeholders. What are the benefits to ROTI analysis? In general, ROTI analysis can be used to: demonstrate that training is an investment maximize returns on training budgets document positive change in individual or organizational performance establish benchmarks for training success encourage employers and staff to take training more seriously measure the effectiveness of training demonstrate accountability for training expenditures and policies Employers and businesses can use ROTI to: make informed choices between training options compare the cost of training to other investment options, e.g., new equipment compare the cost of training / retraining to recruiting new employees increase the value of human capital project training costs

3 improve the efficient use of resources: time, money and people hold staff accountable for the skills and knowledge acquired from training Workers, individually and collectively, can use ROTI to: use training time and money efficiently demonstrate increased human asset value hold employers accountable for accommodating the skills and knowledge acquired from training highlight a particular training need provide objective measures for training goals Trainers and HR departments can use ROTI to: make training objectives and content more relevant focus training on behavioural and/or organizational change refine and revise, or eliminate, weak training programs demonstrate the value of particular training products and services promote the importance of evaluation justify training budgets encourage training transfer or application of new skills and knowledge These are examples. You may have yet another purpose to add. Start thinking ROTI before you need to. ROTI is easiest when training has been designed and delivered with: an early focus on the trainee through, e.g., interviews, observations, surveys and participatory design and development methods one management team to be responsible for the entire analysis, design, development, implementation and evaluation process sound research design, i.e., based on observation, measurement of behaviour, careful evaluation of feedback, and a strong motivation to make design changes when needed continuous improvement through a repetition of processes (implementation, testing, feedback, evaluation, and change) throughout the training system s life. records, i.e., a complete audit trail.

4 Qualities of a Good ROTI Plan In no particular order of importance, a good ROTI plan should be: 1. useful Is it practical? Is there a sound rationale? 2. feasible Is it doable? How much time does it take? 3. ethical Does it respect legal and ethical issues? 4. accurate Is it honest and technically sound? 5. collaborative Is it agreed upon by all stakeholders? 6. efficient Is it cost effective relative to the cost of the training? 7. adaptable Can it be used for different types of training? 8. inclusive Does it address a range of measures and information sources? 9. flexible Can it be used before, during, and/or after training? 10. effective Does it meet a need for information? 11. credible Is it believable? 12. responsive Does it allow for unintended impacts? 13. objective Is it free of bias?

5 Setting the stage for ROTI (Getting Ready to ROTI) 1. What issue or challenge are you addressing with training? Your description of benefits or training returns will relate to the nature of the outcomes which may be: different for each stakeholder group, e.g., employer, participants, communities long-term and/or short-term planned (intended) and/or unplanned (unintended) positive and/or negative tangible (quantifiable) and/or intangible (qualitative) for individuals or for groups Typical training benefits for employers may fall into four categories: time savings (e.g., less supervision needed, increased productivity) better quantity (e.g., faster work rate, less down time) better quality (e.g., fewer rejects, increased sales, reduced accidents) staff improvements (e.g., less absenteeism, lower staff turnover) Typical training benefits for workers may include, e.g., increased job satisfaction, employment stability, and promotability. The benefits of training should extend well beyond the final offering. The payback period can typically be projected one to five years. 2. What is the training course or program that is to be studied? The ROTI data to be gathered, and the process for doing so, will relate to the nature of the training which may be, e.g.: self-study or instructor-led on-the-job or in a traditional classroom setting on-site or distance delivered individualized or grouporiented customized or off-the-shelf mandatory or voluntary for the individual short-term or long-term once-only or on-going hard or soft skills necessary or optional for business success 3. Have you decided which costs and returns will be included in the ROTI study? All costs must be included, but returns will be unique to each training program or course. Costs and returns will divided into three types: one time only (e.g., needs analysis and course design) per offering (e.g., facilities rental, consulting fees) per participant (e.g., meals, materials) Some ROTI models will dictate which costs and benefits you will measure. 4. What data will you gather, how will you collect it, and what will it cost? A variety of data collection methods will be needed to encompass both tangible and intangible costs and benefits. There may be existing data to use (e.g., productivity measures or industry benchmarks) or new data to acquire (e.g., staff estimates and opinions). Data may be gathered by one or more of the following research methods or instruments: analysis of documents and records (e.g., number of accidents, grievances) opinion surveys of individuals or focus groups observation one-on-one interviews performance tracking Attention needs to be paid to the quality of the measurement instruments. They must provide information that is reliable and valid. Reliability means that the instrument(s) should produce the same results when used under the same conditions; i.e., they should be consistent. Validity means that the instrument(s) should provide data and information that is relevant and accurate. 5. Have you isolated the training returns or effects so that you can attribute the gains to the training and not something else? Some methods for isolating training effects, fully explained in the companion document use of control groups forecasting participant estimations supervisor estimations management estimates customer input expert estimation subordinate input Generally, two approaches are better than one. It should be understood that ROTI figures

6 aren t precise, though every effort should be made to isolate training s effect. 6. Can you convert costs and returns to monetary values? Not all data can be converted to monetary values, but true ROTI requires that it be attempted. To convert data, you have to: focus on a single unit, e.g., sales, product defects, staff turnover. determine a value for each unit, e.g., cost per item calculate the change in performance attributable to training obtain an annual amount determine the annual value of improvement the annual performance change multiplied by the unit value. ROTI then equals the net annual value of improvement less the program cost. Other ways to convert data to monetary values include, e.g.: calculating the cost of quality converting staffs time using internal and external experts using historic costs using data from external studies using participants estimates using managers estimate Some results changes in values, ethics, attitudes, specialized knowledge should be presented as intangible benefits. 7. Do you have the resources to conduct a ROTI analysis? You will need people leadership and co-operative participants, time, money and a plan. Leadership or designated authority is required to set and meet implementation schedules, evaluation targets, ROTI analysis plans, measurement and evaluation policies, and follow-up schedules. Because ROTI analysis requires the active participation of many individuals, they should be consulted and engaged before, during and after the ROTI analysis for a collaborative approach. Regarding time and timing, conducting ROTI may be a one-time-only processes, perhaps to evaluate a particular training program or to compare options to meet a training need. It may take a few days. ROTI that is incorporated into business operations as an ongoing strategy for, e.g., risk management or effective human resources management, may take more time. The ROTI process will add costs and time to the evaluation of programs. Experts in the field consider that 4-5 percent of the overall training and HRD budget should be adequate for comprehensive ROTI processes. The major part of a plan is your ROTI model how you ll do the calculations. In choosing a ROTI model, or developing your own, the pivotal question is who needs to know what? Some common ROTI models, which are explained in the companion document on partner websites (see back cover): training utility formula the Kirkpatrick evaluation model Bell System Approach productivity measurement value added analysis discounted cash flow payback period analysis Information Economics Balanced Scorecard measuring intellectual assets investment impact comparison 8. Can you overcome negative perceptions about ROTI?

7 for isolating training effects.) The very act of collecting data on the dollar value of performance will tend to bias information that is elicited, making it hard to present an accurate picture. (How else would you account for the resources that have been expended?) Costs are known up front, before training, but benefits may accrue over time; and it s difficult to determine when to assess the impacts or benefits. (Just take a reasonable stand between 1 and 5 years.) Most trainers lack the time and accounting skills to do cost / benefit analysis. (Start them off with this guide.) Requests for impact data may disrupt productivity. (And what is the cost of not training?) Many of the most popular training programs will be operated even if costs exceed benefits, so conducting ROTI may be a waste of time. (Yes, but what happens if there s a financial pinch? And could there be better uses of the money spent on training?) Course evaluations may be inconsequential, and impact assessment is too time-consuming and costly. (Is there a better way to demonstrate accountability or improve training?) Some training programs have been implemented for the wrong reasons such as an effort to chase a popular fad or trend in the industry. A ROTI calculation for an unnecessary program will likely yield a negative value. Training won t help if the problem isn t lack of worker knowledge and skills. The outcomes of ROTI could be damaging to the HR department and to budget support from top managers, so it may be better not to know. (If a training program is a total waste of money, won t that become evident sooner or later?) It is difficult to attribute a person s behaviour to any particular reason, much less to a specific training event. (Yes, but there are established methods

8 Getting Started on ROTI Check the costs and benefits that apply to you. TRAINING INVESTMENT Direct Training Costs for Employers cost of needs analysis/surveys course design, development, or purchase salary of instructor and/or consultant salary of staff while on training offsite travel, lodging, and meals facilities rented or allocated equipment and hardware instructional and testing materials course/training evaluation Direct Training Costs for Individuals tuition childcare books and materials equipment, e.g., computer travel / parking special fees, e.g., library loss of income TRAINING RETURNS Tangible Training Benefits For business: increased sales improved overall quality reduced waste or scrap reduced legal costs reduced insurance costs fewer mistakes improved competitiveness improved productivity per staff reduced need for supervision reduced need for help from co-workers reduced time to perform operations reduced downtime reduced overtime improved profitability improved customer satisfaction improved personnel relations reduced staff absenteeism reduced staff grievances reduced number of strikes reduced staff turnover reduced discrimination charges reduced requests for transfer improved safety record compliance with regulations broadening the range of workers tasks meeting a shortage of qualified labour implementation of new ideas For workers / individuals: orientation to a new job meeting jobs changing skill requirements increased job satisfaction increased number of promotions increased number of pay increases increased number of training programs improved performance-appraisal ratings

9 TRAINING INVESTMENT Indirect Training Costs loss of productivity while trainees are attending training other staff time related to training, e.g., manager time helping to apply training missed opportunity cost induction costs cost of replacing the staff while s/he is attending the course maintenance costs, e.g., mail, transport, refreshments, record keeping, stationery, accommodation higher wastage rates until the trainee is fully proficient recruitment of training staff or selection of training package the risk that a more highly trained staff may then obtain another job TRAINING RETURNS Intangible Training Benefits For business: improved understanding of new technologies remediating workers inadequate pre-employment preparation improved understanding of markets improved staff morale greater co-operation among staff better management-staff relations better staff understanding of the organization greater staff flexibility greater staff loyalty improved staff work ethic improved staff motivation improved staff perceptions of job responsibilities improved decisions made more problems solved conflicts avoided increased use by staff of performance measures and standards, benchmarking and quality control methods For workers / individuals: greater job satisfaction more portable skills and job mobility greater job security increased self-confidence improved pay and benefits less stress

10 Sample ROTI Worksheets for a Business 1. Time savings Benefits 1.1. shorter lead time to reach proficiency (hrs saved x $) 1.2. less time required to perform operation (hrs saved x $) 1.3. less supervision needed (hrs saved x supervisory $) 1.4. better time management (hrs freed up x $) 1.5. other Better productivity (quantity) 2.1. faster work rate ($ value of additional units, sales) 2.2. time saved by not having to wait (hrs saved x $) 2.3. less down time ($ value or reduced nonproductive time) 2.4. other Improved quality of outputs 3.1. fewer rejects (to scrap, lost sales, returns $ value) 3.2. valued added to output (bigger sales $ value 3.3. reduced accidents ($ value of savings on claims, etc.) 3.4. reduced legal fees ($ value of savings on settlements) 3.5. improved competitiveness (change in market share $) 3.6. other Better personnel performance 4.1. less absenteeism / tardiness ($ saved) 4.2. improved health ($ saved on medical and lost time) 4.3. reduced grievances, claims, job actions ($ saved) 4.4. same output with fewer staff ($ saved on jobs) 4.5. better time management (hrs freed up x $) 4.6. other Better business performance 5.1. increased sales ( $ value) 5.2. increased variety in products/services ( $ value) 5.3. other... A. Total of all one-time benefits B. Total of all benefits occurring once per participant C. Total value of all improvements per participant per month D. Length of payback period in months E. Number of staff affected during this period (D) F. Total of B x E G. Total of C x D x E H. Total benefits (sum of A + F + G) One Time Benefit over Pay-Back Period One Time Benefit Benefit per per Person per Person Month

11 material may be reproduced in whole or in part without written permission from Training House, PO Box 3090, Princeton NJ Costs One- Time Costs Cost per Offering Cost per Person 1. Course development (time) or purchase (price, fees) 1.1. training needs analysis and research 1.2. design and production of training plan 1.3. design and production of training materials 1.4. design and production of training evaluation plan 1.5. other 2. Instruction and testing materials 2.1. per participant (expendables: notebooks, tests) 2.2. per instructor (durables: videotape, software, overheads) 2.3. other 3. Equipment (hardware) 3.1.projectors, computers, training aids, AV equipment 3.2. rentals (e.g., projectors, computers, training aids) 3.3. other 4. Facilities 4.1. telecommunications (e.g., Internet access) 4.2. rental or allocated fair share use of classrooms 4.3. other 5. Off-site expenses (if applicable) 5.1. participants: travel, hotel, meals, childcare, parking 5.2. trainers: travel, hotel, meals 5.3. shipping of materials 5.4. other 6. Salary 6.1. participants (# of instructional hrs x average hourly rate) 6.2. instructors, course administrator, program manager 6.3. fees to consultants or outside instructors 6.4. fees to evaluators 6.5. support staff, e.g., audiovisual, administrative 6.6. other 7. Lost productivity (if applicable) 7.1. production rate losses or material losses 7.2. other A. Total of all one-time up front costs B. Total of all costs incurred each time the course is offered C. Sum of B x number of times course is run ( ) D. Total of all costs incurred per participant E. Sum of D x number of participants ( ) over the course life F. Total costs (sum of A, C, and E) Copyright 1992 by Training House, Inc. All rights reserved. No portion of this material may be reproduced in whole or in part without written permission from Training House, PO Box 3090, Princeton NJ

12 Project Funding Provided By: Human Resources Development Canada Développement des ressources humaines Canada Project Funding Provided By: Phone: Sponsored and Co -Chaired By: Phone: Sponsored and Co -Chaired By: Phone: Project Undertaken By: Phone: